China's Zhongpin says pork prices to stay high

Chinese pork processor Zhongpin Inc expects domestic prices for the country's favourite meat to remain high this year, helping the company achieve its 2008 revenue target, a senior executive said on Friday.

Shortages of the meat -- a result of pig-borne disease and a growing reluctance among farmers to breed them -- sent Chinese pork prices to record highs last year and helped drive nationwide annual consumer inflation to a near 12-year high in February.

Domestic supplies could become tight again this summer after millions of piglets were killed in the harshest winter in years, the country's chief veterinarian said this month.

Despite the burden on consumers and the government, which fears inflation could lead to social unrest, the price spike has been a boon for some pork processing companies, which are able to pass on the higher costs to consumers.

Nasdaq-listed Zhongpin, the country's No. 6 pork processor, this week forecast full-year 2008 sales of up to $520 million, well above previous forecasts, helping to send its shares up 8 percent. It doubled revenue in the fourth quarter. [ID:nBNG108431]

"Pork prices are seen maintaining highs this year on rising raw material costs," Baoke Ben, Zhongpin's executive vice president, told Reuters in a telephone interview. "We're confident we can achieve our estimated target."

Zhongpin and rivals, such as No. 2 producer Yurun Food Group <1068.hk>, are vying for a slice of a booming market in China, the world's largest producer and consumer of pork where about 4 million tonnes of the meat are consumed every month.

Now the firm plans to expand capacity by building new facilities and pursuing acquisitions, capturing a larger share of that arena. Ben said the company will expand chilled and frozen meat capacity to take advantage of climbing pork prices, anticipating little change in the country's traditional preference for pork at the dining table despite its increasingly punitive cost.

"It's a tradition for Chinese to eat pork. In meat consumption patterns, pork accounts for two-thirds of all meat, and that proportion won't fall for years," he argued.

Zhongpin anticipates pork consumption growth especially among citizens in smaller cities and rural areas, as more and more people begin to splurge on pork and other forms of meat, their wallets fattened by years of double-digit economic growth.

Public awareness about food safety is also changing shopping habits, prompting people to go for branded meat products -- such as Zhongpin's -- at supermarkets rather than traditional street markets, Ben said.

Zhongpin, based in the country's second-largest pig breeding province of Henan, will be able to slaughter 2.8 million pigs annually by the end of the year, with chilled and frozen pork output at half a million tonnes when new capacity comes onstream.